How to invest for the aging-U.S. trend

Every now then there’s an overarching trend that reveals which investments to avoid or to consider. And so it is with a recent report from Census Bureau that suggests what we’ve known for a long time, but must revisit: There’s going to be a boatload of older Americans in this country over the next few decades.

For instance, the number of Americans age 65 and older is expected to more than double between 2012 and 2060, from 43.1 million to 92.0 million. Put another way, some one in five Americans will be age 65 and older by 2060, according to Census Bureau.

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The changing demographics in the U.S. pose challenges and opportunities for investors, said Jeff Witt, who is director of research at Private Asset Management and president of the CFA Society of San Diego.

“Traditional economic theory holds that growth in a country’s GDP is a function of growth in a countries workforce, productivity and physical capital,” said Witt. “Therefore an aging population has the potential to lead to slower GDP growth, as the growth in the workforce abates.”

However, given the severity of the recent recession, Witt said we are not seeing older worker leaving in mass due to financial constraints. “Moreover, other demographic changes, such as immigration, have also mitigated the decline in workforce due to an older population,” he said.

What to consider

It would appear unanimous: Health care is the place to be. “Obviously, health-care companies should do well as the population ages,” said Vahan Janjigian, the chief investment officer at Greenwich Wealth Management.

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Witt agreed. “The health-care sector should also benefit from the aging population base in the U.S. as a majority of health expenses occur in the latter part of life,” he said. “Furthermore, there are several medical conditions that have a higher prevalence in minority populations.”

Diabetes is one such example, since the risk of contracting the condition increasing with age and it has a higher occurrence in minority populations, said Witt who also noted that there are several companies creating novel treatments for the disease or the monitoring of glucose levels.

And one of Janjigian’s favorites in the area is Amedisys
AMED, -0.04%
. The company helps keep patients, most of whom are elderly, out of hospitals by providing health care services directly in their homes, he said. It also has a growing hospice segment.

Although potential cuts in Medicare funding could have a detrimental impact on revenues, the bottom line is that it is cheaper to provide health care services in the home than it is to provide them in hospitals,” Janjigian said.

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